The Impact of Economic Crises on Intangible Investments: Why Did Intangible Investment Decline in Finland?

This research note examines the impact of economic crises on intangible investments, with a particular focus on why the growth in intangible investments in Finland stallad after the Great Financial Crisis. Intangible capital has proven to be the key driver of growth in advanced economies, but its financing is complicated by the fact that intangible assets cannot be used as loan collateral in the same way as traditional physical capital. Our analysis is based on the EUKLEMS & INTANProd database and financial statement data, which show that the slowdown in investment affected several key industries, not just the electronics sector centered around Nokia. Our findings suggest that, in addition to liquidity constraints, the “option value of waiting” induced by uncertainty played a crucial role in firms’ investment decisions. In other words, many firms postponed their intangible investments while waiting for better economic visibility. However, the investment behavior of both new and established firms followed a similar trajectory, emphasizing the role of uncertainty rather than liquidity constraints. Although intangible investments in Finland remain relatively high in international comparison, the country has fallen behind in intangible capital accumulation, particularly in relation to Sweden and the United States. Public support measures and risk-sharing mechanisms can help accelerate intangible investments but cannot fully eliminate the uncertainty associated with the broader economic environment. Based on available data, the effects of the COVID-19 pandemic and the war in Ukraine on intangible capital have so far not been as severe as those following the financial crisis.